The Performance of ESG Funds vis-à-vis Non-ESG Funds

Abstract

This article studies the returns of 80 European and 64 US funds and attempts to identify whether those funds that invest in companies following environmental, social, and governance (ESG) principles differ from conventional funds in terms of performance. The alpha, Sharpe ratio, Treynor ratio, and excess daily returns are used as various measures of performance. The five-factor Fama-French model is also applied to distinguish possible different influences of explanatory variables on ESG and non-ESG funds. This article follows the matched pair approach for fund evaluation (developed by Mallin, Saadouni, and Briston 1995) on 4 years of data (2017–2021). The empirical findings do not reveal any statistically significant difference between ESG and non-ESG funds although the former have slightly higher returns than the latter. The article adds to the early evidence of Statman (2000); Renneboog, ter Horst, and Zhang (2008a); and others on investing according to ESG criteria while acknowledging that the benefits are likely to be associated with investor’s demands and awareness of the environment, society, and corporate governance issues.